CROWDFUNDING and peer-to-peer (P2P) lending platforms became buzzwords in the Internet finance sectors last year. At present, there are more than 1,400 P2P lending platforms running in China, according to wangdaizhijia.com, a third-party evaluation institution. Of these, 23 have secured investments from venture capitals, private equity firms or big industrial groups such as Lenovo and Xiaomi Tech. Xu Jianwen, CEO and cofounder of renrenmoney.com, was one lucky investee.

With 100 million yuan (US$16.3 million) invested via an equity management program of Bosera Capital, Xu sees quick expansion for his company, the peer-to-peer lending firm renrenmoney.com, in the near future.

The road ahead

“The biggest headache for me is to recruit new staff,” he said. “This is a new field, so it’s not easy to find talent. With the right people, we will beef up risk management, form a standardized lending model and set of procedures and technically improve the user experience on our platform.”

Xu agrees that it will take time to build up client data. “Credit card centers for traditional banks have data from millions of clients, which may take years to accumulate. We are just beginning. And a sophisticated risk management system is often based on a big enough effective database.”

He is also aware of the fierce competition from other P2P lending platforms.

“I’ve been through tougher times, so I’m not afraid of the future,” he said.

In 2011, Xu registered the company with more than 1 million yuan of his own savings plus investments from a few friends after seeing the huge potential of the Internet financial market.

“At the end of 2008, there was a rush of lending among Chinese banks to fuel the economy, known as the 4-trillion yuan stimulus package. Then, a sudden tightening to reverse its side effects two years later led to a boom in private lending.”

Xu learned about the P2P lending business through a friend and decided to give it a try.

“Traditionally, Chinese banks favor big State-owned companies and local governments when it comes to allocating their loans, although many of the lenders don’t use the money effectively.

“On the other hand, a huge number of individuals and small companies who have good credit cannot get loans to help them through difficult times or expand their business. These people are willing to pay a little higher interest rate to borrow money. The financial market is a huge blue ocean. Like e-commerce platforms that embrace the long tail of the consumer market, P2P lending platforms are embracing the long tail of the financial market,” he explained.

“Established banks are also turning their eyes to small-sum loan business nowadays, but I doubt they will have smooth sailing, given their high operating expenses.”

Young dreams thrive

After graduating in 2009 with a master’s degree in economics from Beijing University, Xu was lucky to find a well-paying job with CITIC Securities.

“I was surprised when he told me he was quitting his job and plunging into the P2P lending market,” said a former colleague surnamed He.

“We had good salaries and hung out with the elite of Chinese society. I didn’t understand why he would want to start his own small business and deal with guys (P2P borrowers) who sell breakfast on the street.”

Xu said he made the choice because his dreams never died. “I was 27 when I quit my job in 2012. I gave myself three years, which I thought would be enough to find out if my business idea would work. If it didn’t, I could still find a good job with my background at 30.”

On the wall of his office, there hangs a calligraphy work saying, “One is his own prisoner if he thinks but doesn’t act.” Xu calls it his motto.

Not long after his company started operation, he suffered a loss from a bad loan when a Shenzhen furniture businessman couldn’t repay 600,000 yuan he borrowed from renrenmoney.com.

“The pure online business model as adopted by Lending Club (biggest U.S. P2PL platform) is not very realistic in China, as some people just don’t pay back. We also tried sending out our own investigators before issuing a loan, which was not cost-effective. Now, we cooperate with local guarantee companies, which guarantee for our borrowers for 10 percent or more of the lending sum as a commission.”

Xu’s team helps local guarantee companies evaluate clients by balance-sheet yardsticks while the companies evaluate their clients’ backgrounds, social networks and credibility.

“The practice has worked well for us so far,” he said.

For all financial firms, risk management is the most important thing for renrenmoney.com. For Xu, this issue has two facets. The first is the risk control in business operation, as in the scrutiny and issuing of each loan. The second is the risk control in the whole system, where P2P lending companies have to follow certain basic rules in the game.

“Everyone working in the financial sector has to draw a line in the sand and vow not to lie or conspire with another party to cheat clients. Selling a financial product is very different from other businesses because after the deal is signed and you’ve paid for it, you still have to wait a long time to see the end results. That’s why we see Ponzi Schemes recur from time to time.”

In his opinion, oversight from the government is urgently needed to regulate P2P lending platforms. “Traditional financial institutions need licenses to operate, and so should P2P lending platforms,” he said. “They need to meet certain criteria and operate according to rules.”

Jack Ma is his hero

Interestingly, Xu found that borrowers on renrenmoney.com were often small businesses or individuals from less developed regions in middle and western China while the lenders were mostly white-collar workers in big cities.

“I was thrilled to see my company literally help the development of small towns in middle and western China,” he said.

“Investment is what’s initially needed to fuel growth in less developed regions, and P2P lending platforms like ours have helped to channel funds into those areas.”

Xu said Jack Ma of Alibaba is his hero.

“Tencent and Baidu are also successful Internet firms, but Alibaba thoroughly changed Chinese society. People can buy stuff at much lower costs thanks to Ma, many small- and medium-sized companies can reach out to the global market thanks to him, and he facilitated the prosperity of the logistics industry.”

Xu said he does not crave a jet-setting lifestyle, which gives his present colleagues a reason to like him.

“He wears the same suits and shoes Monday to Thursday, and a few different tees on Fridays. He’s like a schoolmate from our university, not some big boss,” said a female staff member from renrenmoney.com, surnamed Liu.

Xu said deep inside he hopes to be a teacher and share what he has learned about business with others.

“Secretly, I hope that I will leave a trail in history, like Jack Ma. But even if I am not as successful, I know that I have helped thousands of small businesses and individuals realize their dreams by lending them seed money.”

“Secretly, I hope that I will leave a trail in history, like Jack Ma. But even if I am not as successful,

I know that I have helped thousands of small

businesses and individuals realize their dreams by lending them seed money.”